Are Social Security Benefits Taxable?

For most people, Social Security retirementSecurity benefits. Also included is tax exempt
benefits are not taxable. However, about a thirdinterest income so taxpayers can't invest in
of people receiving retirement benefits must paymunicipal bonds to avoid paying taxes on their
income tax on a portion of their benefits.benefits.
Basically, if your only income is from SocialTaxpayers who file married filing separately have
Security, then you're not going to owe any taxesto pay taxes on 85% of their benefits, regardless
on your benefits. However, if you have earnedof their other income. This is to avoid married
income from a job, or if you have substantialtaxpayers from filing separately to try to reduce
investment income, part of your benefits could betheir taxable income (and thus the taxes paid on
taxable.Social Security).
There are two base amounts that determine ifThese base amounts were set in 1983 (and
you will owe tax on your benefits or not. If youramended to add the 85% base amount in 1993).
combined income is greater than $32,000 (marriedThey have never been adjusted for inflation so
filing jointly) or $25,000 (single taxpayers), then upmore and more retirees are finding that they
to 50% of your benefits could be taxed. If yourhave to pay tax on their retirement benefits each
combined income is greater than $44,000year. Since Social Security is facing financial
(married filing jointly) or $34,000 (single), then youdifficulties thanks to the large number of baby
could pay taxes on up to 85% of your benefits.boomers getting ready to retire, it's not likely that
Combined income for purposes of determiningthese base amounts will be adjusted any time
whether your benefits are taxed is defined assoon. Therefore, careful planning with your tax
pension income, wages, interest, dividends andadvisor is needed to minimize the amount of
other taxable income, plus 1/2 of your Socialtaxes you pay on your retirement benefits.